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Cars and Houses Brought Back the Economy

The economy is up 3.5% in the 3rd quarter, thanks in large part to government subsidies for car and home buying. Otherwise, the impact of the stimulus has been muted, says The Washington Times.

Sung Won Sohn, economics professor at California State University Channel Islands, says that these programs have brought the recession to an end.

"The "cash for clunkers" trade-in program for gas-guzzlers inspired a 22.3 percent surge in purchases of big-ticket goods - primarily autos - while the department said the ramping up of auto production to meet demand for new fuel-efficient cars accounted for 1.66 percentage points, or nearly half, of the growth registered during the July-September quarter."

Yes, and it's a bad thing

A temporary debt-funded gift for people to buy houses and cars should not be confused with sustainable economic growth. This is some of the silliest economic policy ever. What I can't figure out is why the left (namely many readers on this site) has given the Obama Administration a pass on their policy to subsidize cars and suburban sprawl houses. The only thing you ever hear on this site is how Republicans and the oil lobby and the free market think tanks are ruining the world and in bed with the "sprawl lobby", yet directly giving money to people to buy sprawl homes and cars (unprecedented) is just ignored. In fact, Obama is commended by his actions to "save" the economy. What a bunch of ridiculous double speak. The anti-car, anti-sprawl enthusiasts should save face by speaking up against these actions. If that weren't bad enough, the money being used is your children's and grandchildren's with interest, they just don't know it yet.

What happened to sustainability? The economy was rapidly, yet painfully trying to deflate and we had to stop it in its tracks on the basis of economic growth and temporarily inflating our way out of every problem we have. There is nothing sustainable about a GDP increase caused by government spending. Nothing has been solved: unemployment is still high, toxic assets are still on bank balance sheets (valued at fake amounts), the fear of deflation is still present despite wreckless fiscal and monetary policy, helicopter Ben and Obama are still working hard to devalue our currency and create inflation. Banks, however, are doing great. They borrow from the Fed window at zero and invest in treasuries and stocks to make huge money. Meanwhile, they make few loans and don't deal with their toxic assets. Who benefits: the top mangement, day traders, and large shareholders. Ford has been blessed by cash for clunkers.

When you have a hangover from too much booze (credit), the answer isn't to have a chaser. You are going to have to suffer a hangover eventually or else you'll just die.

First Time Home Buyer Tax Credit

I'm assuming he's talking about the first time home buyer tax credit of $8,000. You can get $8 Gs from your grandkids to buy a home if you've never owned a home before and meet certain income parameters.

Bingo

Let's not get into the Federal Reserve's direct purchase of Treasuries and other quantitative easing measures like purchasing mortgage securities. This is an intentional measure to artifically keep mortgage rates down. How do you pay for this? Inflation to destroy your savings and your children's standard of living.

Created in 1991 as a way to boost homeownership in rural areas, the program is being tapped by home buyers in overbuilt exurbs who are attracted to the no-money-down terms.

When Erick Moore first read about the USDA's Rural Development Guaranteed Loan program, he says he imagined it would be "restricted to some little farmhouse." Instead, the 33-year-old computer programmer moved last month into a four-bedroom, three-bath home in Fuquay-Varina, N.C., 17 miles outside Raleigh. The house sits on nearly one acre and features a brick facade, 10-foot ceilings and hardwood floors.

Robbing Peter to Pay Paul

Then increased GDP growth this quarter is primarily just robbing Peter to pay Paul via Cash for Clunkers. People who were going to buy cars in June simply stopped and waited until July (lowering 2Qs GDP growth rate) and those who were likely going to buy cars later this year simply stepped up and made their purchase earlier (lowering 4Qs potential GDP growth rate). Cash for Clunkers simply shifted the demand around. Here's an interesting article on the cost of the program:

http://thecaucus.blogs.nytime

In addition to the unemployment aid, the measure would keep alive the $8,000 tax credit for first-time homebuyers that is scheduled to expire at the end of the month. Under a bipartisan agreement, people who have lived in their current home for at least five years would also become eligible for a new $6,500 tax credit if they buy a new house.

“We would help first-time home buyers, and we would also help homeowners looking to move up to a new home, but we would exclude from the credit speculators who may have recently purchased a home intending to flip it for a fast profit,” said Senator Max Baucus, Democrat of Montana and chairman of the Finance Committee.